INTRODUCTION: Beginning in 1992, governments throughout Canada began reducing expenditures in an effort to eliminate fiscal deficits and reduce their alarmingly high debt burden. As part of this deficit-fighting era, governments reduced hospital expenditure levels quite dramatically. Some of the current problems in the Canadian healthcare system - the recent unrest in the nursing labour market in particular - are often attributed to this hospital downsizing era. METHODS: This article examines trends in the labour market for registered nurses in Canada during the hospital downsizing period. Of particular interest is the effect of hospital spending reforms on nurse employment levels in hospitals and on the age structure of the nursing workforce. After identifying the trends, the main factors driving the trends are discussed. RESULTS: Results indicate that a decrease in the demand for nursing labour resulted in large staff layoffs during the restructuring period, particularly among the youngest age groups. DISCUSSION/CONCLUSION: The evidence does not support the claim that deteriorating wages and working conditions in hospitals led nurses to quit their jobs during the hospital downsizing period.